Research On Inventory Management Theory And Methodology Innovation And Demonstration In Pharmaceutical Industry

The inventory management performance of pharmaceutical industry is not good due to the characteristics of its productions, manufacturing process and distribution network. In 1990s, the pharmaceutical companies have to struggle for their high cost, so they have to enhance the manufacturing and supply chain process management, which including total inventory reduction.Inventory will reduce the profit margin by various forms. First, inventory occupies cash, working capital and relative maintenance expense. Secondly, inventory also reduces the effectiveness of the supply chain. Moreover, inventory covers the quality issues, insufficient communication and teamwork between different functions. The historical earning and high marketing segment could not be the competitive advantage, it is the current situation rather than the future, and we could not find the potential challenge. Inventory turns tell us the truth and competitive advantage;it is the strategic measure that could make sure the long term success of the company.Modern inventory management methodologies include logistics management and the implementation of ERP/MRPII which are the combination of advanced management theory and practices based on modern computer technology, lean production which was developed by Japanese companies, and six sigma methodologies which was developed by Motorola and General Electronic. All of them have both advantages and shortages. Currently, the world leading companies integrate them all to get the greatest benefit.Sino-America Tianjin SmithKline&French Company launched Lean and Six Sigma program in year 2001, inventory reduction was a critical project of the program. This project was implemented according to standard six sigma project management procedure;we applied Lean Production, Six Sigma Management and the other modern inventory management methodologies. Raw material inventory cover days was decreased by 51% and location occupancy was decreased by33%, WIP inventory cover days was reduced by 46.5% and cycle time was shorted by 33%, so we eliminated two rented warehouses to save more than 100 K RMB per year. This was achieved by order process optimization, improving supply chain transparency, decreasing waiting time, improving planning process and warehouses locationoptimization.Pharmaceutical companies are facing new challenge, so they should improve supply chain management process and develop various inventory reduction strategies for different products by using the practices of other industries and taking advantage of Third Party Logistics according GMP requirements.